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Monday
Oct012012

“Fail to Plan - Plan to Fail”

WHY BUSINESSES DON’T PLAN

By Ron Burgess - February 1998

Some of the companies we work for already have a “Business Plan.” However, the marketing elements in these plan are often weak. Mostly, these elements are only mentioned in a brief paragraph and only address the general type of  business that the company is engaged in.  The reason for this is that the plan has been developed with the underlying perception that there is no need for to develop a marketing strategy when the business plan is developed. 

While consultants to the process should be prompting the development of an in-depth marketing element to be built in the business plan, they rarely do so.  Since accountants, financial advisors and bankers do not usually question marketing plans (they are not trained to do so, and cannot quantify the marketing plan in the same way in which they are trained to look at expenses, profits, and ability to qualify for a loan) the inclusion of these vital elements are not seen as necessary to be included in the initial phase of development. 

As a young business owner myself, I have obtained loans for business startups and expansions.  I was never queried on my marketing plan.  Years later I learned from friends who ran banks and loan departments, that the very structure of  loans is built to meet regulatory standards, not because they exploited a market.  Funding decisions made by judging the ability to pay back loans based on previous business performance, or on the granting reduced risk loans by sharing the chance with the SBA. 

I will never forget a discussion I had with a good friend who was the president of a Colorado bank.  We were discussing the proper planning of retail inventory buying.  Retail inventory can devalue at 40% per month, based on a whole series of reasons: industry, fashion sensitivity, seasonal sensitivity, or competition. 

My client used a sophisticated buying process to force depletion of  poor performing inventory and to create an “open-to-buy” for needed inventory.  During a discussion about borrowing,  we evaluated the subject of inventory value as an asset against the a bank loan.  My friend stated that he would not want to see a reduction of inventory because a loan is made based on the inventory asset as security for the loan.  I explained that that was crazy; that, in fact, the inventory was worthless and, if not liquidated, would soon strangle the store with too many poor performers and not enough merchandise to fill the demand. 

He explained that it was common practice to watch inventory levels as an asset.  In fact, some loan officers would encourage inventory accumulation as long as the income statement showed adequate profits.  I became unglued -- it was a good thing he was a friend and not my client’s banker!  I explained how retail inventory was calculated (a technique to properly value the cost of inventory) he was, in turn, shocked.  He had never encountered the technique, and came to realize, in short order, a huge flaw in the financial reporting of  retail business.

The loan officer must fit loans into standard financial criteria to get it past the loan committee and regulatory agencies; they do not understand marketing or merchandising, and only the most diversely experienced officers understand how to view a marketing plan. The irony is that the marketing element is the only reason a business will thrive.  Excluding this strategy as part of the financial evaluation criteria is absurd!

Bankers are not alone.  Although CPA’s have a different agenda they still have little understanding of marketing.  As Director of  Management Services for a national retail merchandising constancy, I worked with hundreds of accountants during my seven years with the firm. I found only three accountants familiar with the example above.  Accountants are frequently amazed as to how a client can continue to grow.  Usually, their role is to provide accurate financial reports and plan taxes.  They are not employed nearly enough to provide better cost analysis or management reports by their clients.  Neither do they do a good job of selling these valuable services to clients.

This is not an indictment of bankers, accountants, and financial advisors.  They are just not trained to evaluate marketing elements of business plans. (Far be it from me to throw professionalism stones, as part of the marketing profession!  The marketing profession has no universally accepted rules of conduct, and is very guilty of  gaps in ethics.) It is just not realistic to expect these professionals are equipped to provide a service they are not, in most cases, able to provide.  Business savvy requires understanding the limits of these professional services in order to avoid serious oversights in planning marketing strategy. 

“I’m late! I’m late! For a very important date! No time to say, ‘Hello! Good-bye!’ I’m late, I’m late, I’m late! -  Lewis Carroll - Through the  Looking Glass

The last reason planning is not done is due to the time required to do the actual planning.  Stephen Covey, one of the nation’s top leadership consultants, clarifies problems caused by lack of time. The root of the issue is time and priority management.  In his newest book “First Things First” he breaks time/priorities into four categories: 

  1. Urgent/Unimportant
  2. Non-Urgent/Unimportant
  3. Urgent/Important
  4. Non-Urgent/Important

Most phone calls fall into the Non-Urgent/Unimportant category, while planning is in the Non-Urgent/Important category.  Do-it-now-entrepreneurs can sabotage their business by allowing interruptions from subordinates, phone calls, mail, and dozens of otherwise irrelevant uses of time.  These interruptions come from poor planning, poor delegation and organizational problems, as well as their personal need to be important or indispensable. 

Covey describes the “addiction to the urgent.”  Some personalities actually get an addictive rush of adrenaline by intentionally leaving too little time to plan.  I see this occasionally in clients and had a business partner who fit this mold perfectly.  He loved to wing-it in presentations, sales calls, or last minute client deadlines.  If the results turned out well, he was a hero; if the situation turned out poorly, he would declare, “we did the best we could based on the time we had for preparation.”  The kicker was that he was in charge of the preparation schedule!

Planning is many times considered too time consuming.  As a result, it never happens! Understanding the process of effective planning is the key to success. Simply put, planning can be categorized in two categories: flexible and static. 

A static plan is one that is focused on a specific period of time: such as one year.  The static plan will become the blueprint of instructions for the company. At the end of the period, this plan is evaluated so adjustments can be made to accommodate unanticipated variations. Generally the plan takes months to prepare ahead of the start date, and months to evaluate at the end of the period.  I have seen plans of Fortune 500 companies that literally took six months to prepare, twelve months to execute, and two months to evaluate.  The plan was always at least eighteen months out before corrections could be made.  This is tantamount to turning a battleship in midstream. 

A flexible plan is much more actionable, because it has built-in correctional elements which can model outcomes faster.  The actual can be compared to plan each month (or week if necessary).  The plan is then immediately corrected, based upon actual performance.  The new plan is forecasted several months out, allowing adjustment time for management.  This planning approach becomes a live management tool rather than a “static” score card.  Immediate changes can be made to insure the best outcome.  Used in this manner, the up-front planning time is a one-time occurrence; the process becomes an on-going monthly review: a management function rather than a pure planning function.

The largest investment of time is the initial planning phase. Many companies have much of the preliminary work done, but have not created an actual document. The flexible planning model is a strong argument for the excuse of extensive time investment. Good planning requires clear objectives in all areas of business: marketing, finance, human resources, and systems (including technology). Well developed plans also include components such as risk analysis and contingency planning.  While each area requires special knowledge, integration key to realizing overall success. Complete planning should never be neglected. Neglecting to plan is as much a choice as choosing not to plan.  Good planning is like a three legged stool; the money, people and systems must work together, or you’ll be balancing on two legs.  

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